The U.S. is on track to default on its payments obligations if the debt ceiling is not raised.
But according to Ray Dalio, founder of the world’s largest hedge fund Bridgewater Associates, the problem could extend beyond a debt crisis.
“The debt ceiling negotiations is ridiculous because it’s not dealing with the problem,” he said in a YouTube video.
The billionaire investor explains that if the debt ceiling is raised, the U.S. will just keep piling on debt. And if the limit does not increase, the country will have to either default or cut expenditures.
“The problem is that we’re spending more than we’re earning, and it doesn’t have to be that way,” he said.
“If we don’t fix that, we are going to have a debt crisis problem and social problem that’s going to cost us dearly — it’s going to cost us our system as we know it.”
The situation is unsettling. But Dalio knows a thing or two about navigating uncertain waters. Here’s a look at some notable investment themes in Bridgewater’s portfolio.
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Emerging Market Equities
Dalio’s investment horizon extends beyond U.S. borders.
According to Bridgewater’s latest Form 13F filing with the Securities and Exchange Commission (SEC), Dalio’s fund held 17,862,641 shares of iShares Core MSCI Emerging Markets ETF IEMG at the end of the first quarter. With the position valued at $871.52 million at the time, IEMG was the largest publicly traded holding in Bridgewater’s portfolio.
IEMG holds more than 2,600 stocks and provides exposure to a broad range of emerging market companies. Its top three holdings are Taiwan Semiconductor Manufacturing Co. Ltd., Tencent Holdings Ltd. and Samsung Electronics Co. Ltd.
Bridgewater also owned 8,471,104 shares of Vanguard FTSE Emerging Markets ETF VWO at the end of March, a stake valued at $342.23 million.
VWO is another exchange-traded fund (ETF) that gives investors access to emerging markets like China, India, Brazil and South Africa. It holds more than 5,000 stocks.
In a MarketWatch interview published in October, Dalio said that opportunities will “come in different regions” over the next five years.
“As we look at the world, we have to recognize that there are bright spots and there are less bright spots, and places like emerging Asia, places such as Singapore and Vietnam and Indonesia and places like that are bright spots,” he said. “India, I think, is going to be a brighter spot.”
Consumer Staples
In an era where artificial intelligence and cutting-edge technologies dominate the headlines, consumer staples may not seem like an exciting business on the surface.
But Dalio still likes the segment.
Bridgewater’s third-largest publicly traded holding at the end of March was Procter & Gamble Co. PG, a company deeply entrenched in the consumer staples business. With well-known brands like Tide, Bounty, Gillette and Pampers, the company offers a range of products that households buy on a regular basis, allowing it to generate consistent revenue through thick and thin.
Beverages are another part of the consumer staples category. And rather than choosing between Pepsi and Coke, Dalio is going with both.
Bridgewater’s Form 13F filing revealed that the firm held 2,807,523 shares of PepsiCo PEP and 8,145,223 shares of Coca-Cola Co. KO as of March 31, valued at $511.81 million and $505.25 million, respectively.
It’s easy to see why both companies can be resilient: Even in a recession, a can of Coke or Pepsi is still affordable to most people.
Another reason many investors are attracted to consumer staples companies is their ability to pay reliable dividends.
Earlier this month, PepsiCo announced its 51st consecutive annual dividend increase. Coca-Cola’s board approved the company’s 61st consecutive payout increase in February. Meanwhile, Procter & Gamble has paid a higher dividend to shareholders for 67 years straight.
Stocks are volatile — and even big consumer staple names are not immune to the market’s wild swings. If your goal is to earn a steady stream of passive income, you might want to look into reliable dividend plays outside the stock market.
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